Blackbaud Inc (BLKB) 2007 Q1 法說會逐字稿

Thank you, very much. Good afternoon, everyone. Thank you for joining us today to review our first quarter 2007 results. With me on the call today is Marc Chardon, President and Chief Executive Officer; and Lee Gartley, Blackbaud's Senior Vice President and President of the Target division. Marc and I will make a few prepared remarks, and then we will open the call for questions. Lee will join us in the Q&A session.

Please note that our remarks today contain forward-looking statements. These statements are based solely on present information and are subject to risks and uncertainties that can cause actual results to differ materially from those projected in the forward-looking statements. Please refer to our SEC filings including our most recent annual report on Form 10-K and the risk factors contained therein, as well as our periodic reports under the Securities Act of 1934 for more information on these risks and uncertainties and on the limitations that apply to our forward-looking statements.

Also, please note that a webcast of today's call will be available in the Investor Relations section of our Web site. With that, I'd like to turn the call over to Marc. He will provide you with some color on the first quarter results and an update on our strategic initiatives. I will come back a little bit later to give further details regarding our financials. Marc?

Thank you, Tim, and my thanks to all of you on the phone for joining us on the call today. Our first quarter 2007 results were highlighted by revenue and operating profit that were above the high end of our guidance. The strength of our business was well balanced during the quarter with both core and new solutions generating strong growth. From a sales channel perspective, our enterprise team again made a solid contribution and our traditional mid-market sales teams, both inside and outside, had a very strong quarter that drove the upside in our overall sales performance.

Another highlight was the early success in integrating the Target company acquisition. As you know, this is a long-term process, but our aspirations for what we thought we could accomplish in the first ten weeks as a combined entity were high and our execution exceeded those goals. As we look ahead, we feel very good about Blackbaud's product strategy, strong competitive position and expanding market opportunity. But, we are still in the early stages of the Target integration and of launching several new solutions. Feedback from customers and prospects continues to be favorable, which is exciting from a long-term growth perspective. Now, looking at the near-term, our strong first quarter results and continuing momentum have led us to increase our forecast for 2007, which Tim will cover in more detail in a moment.

Now, let me turn to the details of our first quarter performance. Total revenue of $55.3 million grew 27% on a year-over-year basis, exceeding the high end of our guidance which was $52.4 million to $54.1 million. We are pleased to report -- very pleased to report that both Blackbaud and the Target companies contributed to the revenue upside in the quarter. License revenue of $8.1 million grew 12% year-over-year and was slightly above the high end of our guidance. Subscription revenue was $4.9 million, which is an increase of 111% on a year-over-year basis.

We also generated solid growth from both our services and maintenance during the first quarter, with maintenance growing 17% year-over-year and representing the largest component of our total revenue, as you all know. Service revenue grew 34% and represented the second largest component of total revenue.

Looking at our major product categories, our core solutions, Raiser's Edge, Financial Edge and Education Edge, drove approximately three-quarters of our total sales in the quarter and they grew at about the mid-20% range. That represents the highest quarterly growth for these solutions in over two years. These core solutions help open the door for us to sell additional products and services over time and they are key drivers for the majority of our larger deals.

Drilling down into our core solutions, our flagship solution, The Raiser's Edge, continues to be a major differentiator for us in the marketplace and was the primary driver to strong growth in our core solutions. Sales of RE grew by more than 20%, that's the highest quarterly growth rate for RE since going public, and the solution was a primary component in each of our top-ten software deals in the quarter. Although RE did benefit from the closure of a sizable transaction that moved out of the previous quarter, demand was also very broad as evidenced by the fact that unit volumes for RE were also up nicely on a year-over-year basis. We believe this great performance provides further evidence that our overall market opportunity continues to be very attractive.

The Financial Edge and Education Edge also contributed to the year-over-year growth in our core solutions during the quarter, while sales of our portfolio of new solutions were up over 40% on a year-over-year basis and represented approximately 25% of our sales in the first quarter.

Among our new solutions, the Internet offerings led by NetCommunity achieved the highest growth rate in the quarter. NetCommunity sales more than doubled compared to the first quarter of last quarter and its contribution to our overall sales was greater than one of our core solutions. This is significant given the long history and the name recognition our core solutions have in the non-profit markets. The rapid growth of NetCommunity is being driven by the increased use of the Internet by non-profit organization to drive communications with their constituencies and also to our significantly improved ease of use and functionality, as well as the integration with our industry-leading Raiser's Edge Fundraising solution.

During the first quarter, NetCommunity was a component in approximately 25% of our software deals that were over $25,000 and in each circumstance it was sold in combination with one of our other core solutions. Adoption of NetCommunity within our base of over 15,000 customers remains low and the addressable market opportunity should expand even more when we release a NetCommunity based solution that does not require integration with RE. This should enable us to more effectively meet the needs of various types and sizes of non-profits, including the very largest organizations with high-volume fundraising environments, where multiple channels are utilized to drive contributions. This of course is where Target Software has proven domain expertise and brand awareness.

Later this month, we will also demonstrate an integrated version of Blackbaud's NetCommunity with Target's Team Approach. And as you may be aware, Target had previously provided only a simple interface between their solution and other Internet solution providers. So, this initiative to provide tight integration with NetCommunity should be very well received in the market. We believe these new releases of NetCommunity based solutions will be very compelling to Chief Marketing Officers at virtually all non-profit organizations, as they will represent the first time a vendor has offered both a standalone solution that meets their Internet marketing needs, as well as one integrated with the world's best fundraising applications.

Finally, we are pleased to see another strong performance from our Blackbaud Analytics solutions during the quarter, as they delivered solid growth and represented the second largest component to our sales of new solutions. Patron Edge also made a solid contribution, including five transactions in which the software revenue component of each deal was over $25,000.

Turning to the distribution of deals and performance of our various sales channels in the quarter, the business was well balanced with a strong ASP, good flow of transactions, many of which involved multi-product sales. We also saw a strong increase in unit volumes and contribution from each of our channels. During the quarter, our average deal size remained in the high $30,000 range.

Among the larger deals, and evidence of the traction we are starting to see in the improved marketing of our multi-product suite, a large university purchased The Raiser's Edge, Financial Edge, NetCommunity, The Information Edge, and they signed on to become one of the early adopter customers of our Direct Marketing application. As an aside, this was one of the largest transactions in the history of Blackbaud and the software component alone was valued in the several hundred thousand dollar range, while the total solution value to be recognized over time is in the $1 million to $2 million range. This was the large deal that did not close at the end of Q4, which we referenced in our last call. As we noted then, part of the reason for the delay was the customer's interest in an additional Blackbaud product, which they did in fact license.

Further evidence of the broad-based demand we saw in the quarter was the fact that the number of deals where the total solution value was north of $50,000 increased by 40% compared to the prior-year period. Volumes were solid not only with the larger deals but across the board, as evidenced by the fact that we had one of the stronger unit growth quarters in the last couple of years.

Last quarter, I noted that we were pleased to see that the productivity of Blackbaud's traditional mid-market marketing and sales organizations had been improving over the course of 2006. The improvement continued in Q1 and the overall performance was quite impressive. We've spent significant time and energy focusing on this aspect of our business, and during the past few quarters, we started to see the payback on those investments.

Enterprise sales was the other driver to our sales growth. During the first quarter, our enterprise sales group made a solid contribution to our overall performance. You may recall that in the third quarter of last year, we reorganized our enterprise sales force to bring it back within our overall sales management. I believe we are starting to see benefits from this change in the form of improved account management, better internal processes and communication around our more complex larger opportunities.

In addition, we are also beginning to see a more robust and growing pipeline. It will still take time for these benefits to translate into results, but we are encouraged by the progress. It's also worth noting that while revenues from our international operations still represent only a little over 15% of our total revenue, these business units did deliver a strong performance in the first quarter, with growth in sales of over 30% on a year-over-year basis. We would expect our international growth to be somewhat lumpy on a quarterly basis given its relatively small size. But, we feel good about the managers and the team that we have in place in each of our key geographies, and we feel good about the improvements we are seeing in execution.

I would like to finish by updating you on progress on our newer product initiatives and on the recent acquisition of the Target company, which are important aspects of our ability to sustain low to mid-teens growth over the long-term. The revenue and profit contribution from the Target company this second quarter was better than expected. This is encouraging as clearly Q1 was a transition quarter, Target's first as part of Blackbaud.

In terms of sales momentum, we closed some high-quality deals and we believe we are well positioned to win several other competitive situations in the next couple of quarters. In other words, we saw no slowing of Target business as a result of the acquisition by Blackbaud. To pick just one example, Target Software closed a four-year hosting and services agreement valued at just under $1 million with a large international relief organization to support their high-volume Direct Marketing program. This transaction is typical both in size and scope of the type of transactions that Target has done in the past and of those reflected in the opportunities they are currently pursuing.

And as a reminder, Target Software had roughly 80 customers prior to the acquisition, that's compared with Blackbaud's 15,000 customers, and the Target business is not high volume, low ASP like Blackbaud's. Rather, their business model is predicated on a smaller number of high end, large database deals, very large database deals where sales cycles could be longer, deal sizes are larger and contracts are multi-year in nature, renewable and hence recognized ratably. So, while books can be a bit lumpy on a quarterly basis, revenue on the other hand tends to be predictable over a 12-month period.

Demand also remained strong for Target Analysis solutions, which as I've noted previously are highly differentiated from the analytics offerings of Blackbaud. Target Analysis, which has roughly 500 customers, sells predictive models that help organizations assess the effectiveness of their fundraising efforts. They have also developed a huge database of information that enables organizations to benchmark how they are executing their fundraising efforts when compared with their peers in the non-profit world.

Blackbaud's analytic solutions on the other hand have traditionally been more focused on creating customized models, customized models that help our customers identify likely givers, and then when combined with third-party wealth data, help us to develop specific giving requests. There is no other vendor in the marketplace that can match the end-to-end analytics capabilities of our combined analytics, and we continue to believe there is good potential for synergies between these two businesses in the mid to long-term.

As we announced today, one of the most significant developments during the first quarter was the release of our Direct Marketing application previously code-named Bullseye, and Blackbaud's Enterprise CRM, which was previously code-named Galileo. Remember that both products are built on our next generation .NET Web based architecture, which will provide our customers with several distinct advantages as they deploy applications built on this platform. Blackbaud Direct Marketing is designed to assist many of our existing and prospective customers who are using or considering direct mail and other direct response marketing strategies to supplement their major giving [items].

Blackbaud Enterprise CRM is the next version of our Enterprise Fundraising software and is ideally suited for any organization that has a geographically dispersed operation and that wants to provide an effective solution to all their chapters and affiliates in an easily accessible and cost effective manner. Beyond that, many also want the ability to collect, access and analyze information on a centralized basis. Now, as it stands today, many large federated non-profit organizations experience great difficulty in sharing and leveraging information between chapters and their national headquarters.

Now, we have received very positive feedback from customers and prospects on both of these new offerings and there is excitement regarding our overall future product direction. But, I also want to emphasize a few points here. We have been really clear in our previous remarks that we did not factor into our guidance material contributions from either of these two solutions in 2007. As we stated, our goal was to achieve some early significant wins and make sure we proceeded slowly gaining referenceable accounts that we can leverage in our marketing and sales activities down the road.

Notwithstanding the early response and our excitement, nothing has changed regarding that plan. We have a handful of customers who have purchased Direct Marketing and Blackbaud Enterprise CRM, including one that's already gone into live production. There is certainly more interest in both these solutions, which is a strong signal to us that we have addressed a market that is real and sizable.

As it relates to the longer-term product roadmap, I am also pleased with the close collaboration and true teamwork that Blackbaud and Target software product development management teams have shown in creating our plan for the future. It's been really good to see that neither organization came with a not-invented-here perspective that often cripples the integration of R&D efforts following an acquisition. As I mentioned earlier, we are already working on integrating the next version of our NetCommunity offering with Target's Team Approach. Beyond this, we will clearly have point releases over the course of 2007 to improve the functionality of the new solutions, including leveraging Target's domain and technical expertise to further enhance our Direct Marketing application.

As I said in our last call, Blackbaud Direct Marketing and Target's Team Approach currently address distinctly different market needs, with Team Approach meeting the needs of the largest direct marketers in the non-profit space and Blackbaud Direct Marketing meeting the needs of non-profits that are primarily focused on major giving but looking to enhance their overall fundraising with an integrated direct marketing capability.

The next major release of Blackbaud Enterprise CRM will be roughly a year from now. And in addition, to further improving the functionality available on the platform, we plan to incorporate the major giving functionality that Target had previously planned and committed to customers for the next release of Team Approach. It's worth noting that much of this functionality is either already in Blackbaud's existing solutions or was on our roadmap.

Finally, in the second half of 2008, we plan to deliver a single solution that meets the needs of the very diverse set of organizations which are looking for close integration between the industry's most robust direct marketing application and Blackbaud's major giving functionality. Most of these customers are still in the very early stages of integrating major giving and high-volume fundraising efforts, and we believe our product roadmap meets both the customers' needs and their timetable, and that will be unique from a competitive perspective.

We recently hosted a meeting with Target's client advisory board and they were excited by the integrated capabilities of the platform we will be delivering. I am also pleased to say that, after having had time to closely evaluate our joint R&D plans, we were positively surprised with the relatively low level of complexity that we must tackle in delivering our integrated product roadmap. At the end of the day, we are combining the best of both worlds to meet the broader set of customer requirements beyond what any vendor in this market can address, and we have respective best-in-class functionality and offerings that can meet the most of any needs of both major giving and high-volume fundraising audiences.

In summary, our first quarter was strong and we are raising our outlook for 2007 based on the strength of the quarter and our continuing momentum. From a longer-term perspective, the integration of the Target company is going very well and customer response to our product strategy and our combined roadmap has been very positive.

With that, let me turn it over to Tim so he can provide more detail on the financials. Tim?

Thanks, Marc. I will first focus on providing you with more details on our first quarter operating results, then comment on a few balance sheet and cash flow items, update our guidance and finally, provide a quick review of the status of our capital management program. First, let's start with some highlights from the income statement.

As you have already heard, total revenue came in at $55.3 million, which was up 27% on a year-over-year basis, and 12% over the prior quarter and above the high end of our guidance range by $1.2 million. Within total revenue, Blackbaud generated $51.1 million, an increase of 17% on a year-over-year basis, while the two-and-a-half-month stub period from the combined Target companies contributed $4.2 million in total GAAP revenue. Target's revenues on a pro forma basis, that is for the entire quarter and without the deferred revenue write-down under acquisition accounting, grew in the mid-20% range on an apples-to-apples basis. I am pleased to say that the results from the operations of standalone Blackbaud and the Target companies both exceeded our expectations for the quarter.

New revenue, which we define as the combination of software and services revenue, was $26.4 million for the first quarter, up 26% on a year-over-year basis. Within new revenue, license fees came in at $8.1 million, an increase of 12% year-over-year and slightly above the high end of our guidance range for the quarter. On the services side, revenue came in at $18.3 million, representing strong growth of 34% year-over-year, while also up 24% on a sequential basis.

The last major component to our revenue, maintenance and subscriptions, came in at a combined $27.4 million, which represented approximately half of our total revenue and growth of 27% year-over-year. We continue to enjoy maintenance renewal rates in the mid-90% range, which is a testament to our customer satisfaction and the strength of our technology. Maintenance alone grew 17% year-over-year in Q1, while subscriptions grew, as Mark mentioned, 111% to $4.9 million. We have now been showing subscription revenue as a separate line item in our income statement for over a year, as we recognize its increasing importance to our overall performance.

To give investors a little further insight into how Target's inclusion impacted our various revenue line items, there was virtually no impact on software license -- on the software license line, 53% was in services, 45% was in subscription and maintenance, with subscription being the majority of that amount, and the remaining 2% was split between other and license revenue. Our current plan is also to provide a detailed breakout of Target's impact during the second quarter call, as that will be the first full quarter of integrating their results with Blackbaud. However, with that baseline of information combined with the detailed guidance we provided at the time of the acquisition, we intend to speak about our results only on a consolidated basis after that, as we are already operating as a single company.

Turning now to gross profit, we generated $36.2 million in non-GAAP gross profit in the quarter, representing a gross margin of 65% compared to 69% in the prior years quarters -- prior year quarter, excuse me. There are two reasons for the difference in gross margins. The primary reason is that we had a very successful hiring quarter for our services business. It's the first time in recent memory that we have been able to hire to plan the revenue generating heads for this area of our business. We made a concerted effort to improve our execution in this area and we are pleased with the results.

Additionally, we were able to complete more of the training earlier in the year that will be needed to execute on our growing business during the rest of 2007. This investment was made because of the positive outlook we saw for this part of our business in late 2006, and you will recall that services -- that sales of services were solid throughout last year and particularly in the second half. That said, even with this investment, as Mark mentioned at the outset, we still achieved our operating income -- achieved operating income that was above our guidance for the quarter.

The second factor that negatively impacted our consolidated gross margin by approximately 2 percentage points was the inclusion of Target company's results. Their business is at the -- at an earlier stage of maturity and they are not yet at the point of realizing the scalability associated with serving the high end of the market with what is almost entirely a recurring revenue model. This is not unlike other software as a service businesses where profitability is lower during the earlier stages of a company's growth.

Looking now at operating expenses, sales and marketing came in at $12.7 million or 23% of revenue. This was an increase from 21% of revenue in the prior-year period due to the increased investments in areas such as sales headcount, which is something we have spoken about frequently on prior conference calls.

R&D came in at $6.6 million or 12% of revenue. This is an increase sequentially from the 11% in Q4, but down from the 13% in Q1 last year. We are continue to focus on -- continuing on focus on investing to bring new solutions to the market in 2007. And consistent with our commentary in previous calls, we continue to expect R&D to increase on an absolute basis and it may increase as a percentage of revenue in future quarters. G&A came in at $5.2 million or 9% of revenue. This was roughly in line as a percentage of revenue compared to the prior year.

Non-GAAP operating income then was $11.8 million, ahead of our guidance of $10.6 million to $11.2 million and represented a non-GAAP operating margin of approximately 21%. Importantly, the operating contribution from both Blackbaud and the Target companies came in slightly above the high end of our guidance for the quarter.

The effective rate for non-GAAP results in the quarter was again 39%, leading to non-GAAP net income of $7.1 million, and non-GAAP fully diluted earnings per share of $0.16, based on diluted shares outstanding of 45.1 million. Non-GAAP EPS was at the high end of our guidance range of $0.14 to $0.16.

As we've noted before, we focus our discussions on these calls on non-GAAP results, because we believe that excluding certain non-cash items such as stock-based compensation, amortization of intangibles arising from business combinations and other unusual one-time items provide the best indicator of the health of our overall business and the level of efficiency in our operating infrastructure. That said, we appreciate that investors also need to analyze our results on a GAAP basis, so we've provided a full tabular reconciliation of these GAAP results and non-GAAP results as part of the earnings release.

In summary, then, the reported GAAP net income was $5.9 million in the first quarter of 2007 compared with $5.7 million in the first quarter of 2006. Our GAAP fully diluted earnings per share were $0.13 compared with $0.13 in the prior year.

Let me now turn to cash flow and the balance sheet. We ended the year with $16 million in cash, down from the $67.8 million at the end of Q4. The decrease was driven largely by $58.7 million of cash used for the Target acquisition. You will recall that we used roughly $30 million from our credit facility that formed a portion of the transaction and we subsequently repaid $10 million of that in the quarter. In addition, we paid $1 million for the earn-out in connection with the campaign acquisition that you will recall we did in the first quarter of last year and spent just short of $18 million under our capital management program, which I will cover in more detail in a moment.

We continued to generate strong cash from operations in the quarter, $7.5 million which was more than double the $3.3 million generated in Q1 last year. At the end of the quarter, we had a deferred tax asset balance of approximately $65.1 million that adds roughly $8 million to our cash flow on an annual basis. As we have indicated before, this asset is expected to continue adding to our cash flow at this level through 2014.

Accounts receivable at the end of the quarter were $33.8 million, an increase from $29.5 million at the end of the prior quarter, $3.7 million of the balance at the end of Q1 was related to the Target companies. DSO was approximately 41 days, in line with our target range of DSOs in the high 30s to low 40s. Total deferred revenue came in at $74 million, up 23% on a year-over-year basis.

Let me now turn to our guidance for the second quarter and full-year 2007. For the second quarter of 2007, we now expect total revenue in the range of $61 million to $63 million or a growth rate of around 25% to 29% with a midpoint of 27%, license revenue of $9.8 million to $10.3 million or a growth rate of 6% to 11.5% with a midpoint of about 8%, non-GAAP operating income of $15.3 million to $16 million or a margin of just over 25% at the midpoint in the range, and non-GAAP fully diluted earnings per share of $0.20 to $0.22.

For the full year, we are now forecasting total revenue of $240 million to $248 million, or a growth rate of around 25% to 29% with a midpoint of about 27%, license revenue of $35 million to $37 million or a growth rate of 8% to 14% with a midpoint of 11%, and we are projecting non-GAAP operating income of $59.5 million to $62.5 million, or a margin at the midpoint of the range of 25%, and non-GAAP fully diluted earnings per share of $0.82 to $0.85.

Let me now finish with a very quick update on our two-part capital management program. The first element of course is our dividend program. And today, we declared our second quarter dividend of $0.085 per share payable on June 15th to stockholders of record on May 28th. The second component of our capital management program is our share-repurchase initiative, which we continue to execute in Q1.

During the quarter, we purchased just under 622,000 shares of our common stock for approximately $14.1 million, at an average price of approximately $22.67 per share and at the end of the quarter, had $6.3 million remaining under our existing $35 million authorization. We remain committed to using our cash flow in these ways to enhance stockholder value.

In summary and in closing here, the first quarter was a strong start to the new year and the integration of the Target companies is proceeding well. We are optimistic about our outlook for 2007, which is evidenced by us raising our growth and earnings guidance, and we are excited by our expanding market opportunity and the response from customers related to our long-term vision.

With that, let me turn it over to the operator to being our Q&A session. Operator?

Thank you. (OPERATOR INSTRUCTIONS) And we will take our first question from Adam Holt of J.P. Morgan.

Good afternoon and congratulations on the quarter.

Thank you.

Thanks, Adam.

My first question relates to the reacceleration or I guess strength in The Raiser's Edge business, I guess, to what extent was the one particularly large deal in the quarter behind that strength, and if it wasn't really associated with that transaction, to what do you attribute the strongest growth you've seen there in a couple of years?

Well, certainly a portion of it was related to a multi-hundred thousand dollar software transaction and part of that was in -- was in The Raiser's Edge, but it's not the major component. The major component is the investment I think that we have been making in the core marketing and sales organization, Adam, and that just the unit volumes are up and unit volumes going up helps. So, I would just simply say that that's the -- it's primarily related to that investment.

And if I could --

Also, we actually -- I am sorry. Also, actually we had a pretty good quarter throughout, and that's a similar investment in sales and marketing.

Okay, and if I could turn to the new products, can you talk a little bit more about the go-to-market strategy for the new -- the two new products released today? And as we think about Infinity as the sort of next-generation platform on a more maybe global basis, can you talk about how you see revenue opportunities as you roll out Infinity to the other products and get deeper into the installed base?

It's awfully early to talk about Infinity and other products. I think we need to figure out how to digest the first of an Infinity application. So, I think I'll pass on that for probably another couple of quarters.

In terms of the market opportunity, our belief is we are going to customer bases that are somewhat different than the ones that we have covered in the past. Actually, particularly sort of large federated organizations, both Target and we know pretty well from two different ends, but we -- we don't have a lot of customers where we have done both sort of a major database at headquarters and a distributed environment really from top to bottom. And so, one of the most important things is to get the first couple of customers right and to turn them into really strong referenceable customers. And so, that's why we don't really think of the opportunity as one where we are going to try to drive a ton of revenue this year.

Frankly, we could probably sell more than we would be able to digest and I don't think that's the best way of ensuring long-term growth out of that offering. So, that's the overall perspective. I mean, there is -- there are hundreds of millions of dollars of opportunity, as we said before, in distributed national organizations and in the direct marketing platforms, that will be on the products that are -- the Enterprise CRM products and the Direct Marketing products. So, as we -- when we did the Target acquisition, we mentioned sort of $0.5 billion to $1 billion of market opportunities, and over the next couple of years, that platform evolves to be directly focused on that plus some of our more traditional large enterprise space and even larger customers than we are currently covering.

And so, just a follow-up there and then I will leave it for the rest of the participants. As we think about then, obviously there is some ramp time associated with the new products, but if we were to look forward 6 to 12 months, I mean, do you anticipate -- I guess what I am getting at is, do you see the CRM product, for example, as being part of the enterprise sales force and part of the bag that they take to clients or is it going to be a more broadly distributed product within your full sales force, and at what point do you see the entire team being trained on Direct Marketing and CRM? Thanks.

Okay, great. Yes, sorry, I was -- I didn't express it quite right. So, the -- just to answer that differently for Enterprise CRM and direct marketing, Enterprise CRM is really focused on very large customers, so it's a six-figure deal or a seven-figure deal. And I don't foresee training everybody in the sales force on that because only really the largest enterprise organizations starting off with some federated nationals, major healthcare systems, major university systems, for example, but also probably faith-based organizations and a distributed missionary worldwide and so on, they are -- so, that's a -- in our organization of sales people, that's a handful of sales reps or double handful of sales reps. It's not hundreds.

And I think that for Enterprise CRM, for the next couple of years, you are going to see it being a very focused set of sales teams covering it. And as someone referred, it is sort of similar to the Target -- Target was adding a small number of customers on an annual basis and had 80 customers. Those are sort of typical guys for the high end of one of the Infinity or eCRM deals.

So, going to direct marketing, it's going to start out I think in some of the larger of our customers, but I think that the mid-market for direct marketing is probable over time. We would probably make a different packaging decision relative to how to package and price the product. And once we have had some experience -- some more experience in rolling it out, we will know better how to package and price the new market, then I could see that product, say, sometime in the next calendar year having a somewhat broader sales coverage probably towards the second half of next calendar year.

Terrific. Thank you.

Thank you.

We will go next to Brent Thill with Citigroup.

Thanks. Marc, in terms of the marketing in CRM, can you just contrast the go-to-market -- I am sorry, the deployment times relative to your traditional offerings, how long do you expect that these products will take to roll out?

Well, the direct marketing product rolls out actually relatively quickly because it's typically integrated with a database that already exists. So, if you are selling it as an add-on, which we did for the first customer who has actually deployed it and then started to already send out mailings and so on with it, it implements very, very fast as you can tell that they are already using it.

What takes time is that you are actually developing a marketing database around that. And so, the eCRM or a large RE rollout or in fact a Team Approach, they all are typically roll-outs that take multiple quarters and last up to a couple of years. And if you take the very largest RE projects that we have done, let's say, the ten largest products that we have done, the projects that we have done with RE, you wouldn't be far off for the large kinds of deals that we would be implementing or projects we would be implementing on Enterprise CRM.

It's a change in the business processes often of a customer to put in a new marketing database, a new CRM database, and that takes time and then the translation of all the old data takes time and the testing of the new business processes and the linkages to the financial systems and the control system takes time. And that doesn't really change whether it's an Infinity product today or whether it's RE or Team Approach.

Okay. So, on the new products that rolled out this quarter, you would expect -- you mentioned there is a handful that are in live production, those additional live production customers should start to show up more so you believe in Q3, Q4 or is that --?

I said I have one customer who is in live production, and I would like to see more of them every quarter. I would like to be able to announce one or two more. But, remember, the eCRM ones are going to take a little bit longer than the direct marketing ones and I am not going to project when the first eCRM customers are going to be willing to speak up and say that they are live, because some of our customers actually unfortunately don't want to have their names out there in any -- they have rules against using the name for a promotion for any software company, not just us.

And Tim, real quick, what remains in the Target integration, what additional steps or is it pretty much complete?

Well, I will make a couple of comments on this and then perhaps Marc and even Lee might chime in, but I think it would be fair to say that from a -- from sort of the shared services perspective, IT, human resources, certainly those parts of the integration have been completed. But, there still is certainly some work to be done in other areas. We just basically gotten started in the early stages of integrating two analytics businesses and we have spent a sizable effort really in working together on the product roadmap. So, there is clearly more work to be done, but I would say in the shared services side at least, we feel pretty good about where we are in that respect. Marc -- Lee, why don't you chime in and then maybe Marc will have a couple of more comments also?

Sure, I think that has been some of the key things. We really were focused in the first quarter around product roadmap and around some of the basics, and we are starting to move forward with some of the broader integration, have some great ideas around it. And there is a lot of execution that still needs to happen, but I think we have got some good plans in place.

Thank you.

We will go next to Kirk Materne of Banc of America Securities.

Yes, thanks very much. Marc, maybe just to follow up a little bit on Adam's question, just about the re-acceleration of The Raiser's Edge, you said part of that was getting sort of better execution from the sales teams. Can you extrapolate on that a little bit, is that meaning you are pounding on more doors, are you getting a higher yield out of existing customers, I am just kind of trying to get an idea if is it -- when you're talking about unit volume going up, I am just wondering about how you are getting that?

Well, unit volume by definition is not higher yields from existing customers but a (inaudible). I mean, you can have new units, I guess, if you find new branches of an existing customer or something, but primarily units are driven not by the enterprise because one unit is a big deal. Units for us are a new customer ID, and so units are driven by volume of customers going through a pipeline.

And so, what we have seen is a better -- we work very hard on developing the marketing platform and the tools to measure the impact of our marketing and lead generation activities and then the yields of the quality of leads going into that pipeline, and being more adaptive along the way to what -- which of the projects in terms of marketing and lead generation actually generated leads. And so, the number one thing is just you have got to get more leads going into a pipeline, because we actually win a pretty high percentage of the RE deals that we get into the mid-market.

So, I think also that, as we have mentioned earlier, we didn't have all of the sales organizations sort of hitting on all cylinders all the time. We had some challenges in a couple of other geographies and the sales organization last year had -- when I joined the company a year and a half ago, the attrition level was actually relatively high and the turnover was relatively high, and we've made significant efforts in keeping sales reps on territories and on accounts longer. That means that they know more opportunities, they close more opportunities.

And it may have also been a little bit that we added more sales reps a little earlier in the year. Last year, when we started Q1, we had nobody on the bench, so no sort of reps in training waiting to jump into a hole. And we actually a couple of empty territories. And so, when you are in that state and empty territories typically causes like domino effect. They move one rep into the next territory, to the next territory, to the next territory, and you may disrupt seniority and territory across. So, it's a combination of reduced attrition, full employment or a full bench, and a much better and better metric and more effective lead generation mechanism.

Kirk, just to give you one data point, we actually ended the year with about 14 heads in our sales organization who are, as we say, sitting on the bench, that is waiting to take territories in the early stages of training and getting ready to come on stream as sales reps, and that's the best we have had in a long time.

Okay, great. And then, just around your new products market, it sounds like you will be aiming those at the higher end of the market to start, or are you going to have any sort of product specialists around that to drop into accounts, or do you think there is an attractive opportunity earlier on or is it going to be mainly done through existing account coverage?

Well, the existing account coverage will stay the same, but we will very clearly -- what you would think of as a product specialist is really in the case of these kinds of sales is a solution expert from the services organization. And so, the key issue is being able to define a statement of work and a project plan that actually produces the sort of -- the reduction of pain in the business results that the organization that's doing the buying wants.

And so, these are the early ones typically, it might be the VP of the practice, of the professional services organization or the Senior VP of the organization is literally out and part of the sales cycle. And so, in some ways, it's more than a solution specialist because these are partnership deals where the executive director is betting his or her badge on the ability of us together to build something that's going to dramatically improve their ability to raise money. And so, yes, the sales rep is still responsible, yes, we continue to improve enterprise sales capability and sort of solutions selling capability. But, it comes down in the end to a team effort with executives from across the organization, as well as the sales team.

Okay, and then just last question for Tim, just in terms of paying down the credit facility, do you expect to continue to do that over the course of the year at the sort of rate you did this quarter or is that something you are going to sort of evaluate on a bit-by-bit basis?

Well, I think it's really the latter. We are going to evaluate that as we go. We do have -- if you read through the notes, you will see we actually at the credit facility we have, basically it expires by September 30. We would not anticipate having any problem repaying the current amount outstanding by then. But, as you would appreciate, we are -- we would -- we are also in the early stages of negotiating and thinking through exactly what we want to do next with our credit facility, but it's reasonable to expect we'd probably look for a larger credit facility and probably little bit longer term line. But, we really don't anticipate any problem repaying the debt. But how we will do it quarter by quarter certainly depends to a large degree on other cash needs and opportunities that are presented to us.

Great, thanks very much.

Thank you.

Thank you.

We will take our next question from John Torrey of Montgomery and Company.

Good afternoon guys and congratulations on the quarter.

Thank you, John.

Thank you, John.

A few quick questions for you. You used to talk of the company about doing roughly 3,000 to 4,000 transactions a quarter. With the higher volumes that you are describing now, can you give us an idea, are you operating in a new range or is it still within that historical range you have described?

I would say that what has happened to the range is when we used to talk about that many transactions, part of what was factored into that were large number of insides, small inside deals, and I think that what we have actually seen a little bit over the last year or two years is gradually more -- the mix has kind of changed more to sort of the outside numbers of deals versus inside deals and in fact, even some of the inside deals have actually gotten a little larger

So, what I would say is that when we talk about unit volumes and what you hear us talking about in unit volumes here, it's -- I think that what we are seeing is in particular what we are measuring is the unit volumes associated with new customers and the new customers that we bring to the table. And so, that part of what we are seeing is actually the part that's actually growing the group pretty nicely here in the first quarter. I would say that our overall volume of transactions hadn't really changed that much, it's more about the mix and the size of individual transactions, as you know John, have gone up over time as well.

There is one other aspect which is we are selling more of our training on an all-you-can-eat sort of basis with a product calling Training Pass. And so, there were plenty of training transactions that would have been case by case, one course or three people going to a course or whatever that now don't really happen on the inside sales organization. So, you'd see probably, I don't -- we don't actually track -- I don't even track it this way anymore, but you'd see a lower number of training transactions on an annual basis because the Training Pass is getting to be more and more of that business.

Okay. And with respect to R&D, you described -- you reiterated earlier that spending may go up as a percentage of revenue over the course of the year. If you were able to spend it, invest at the rate that you want to invest that to deliver against the product roadmap that you continue to build, where could that go, R&D as a percentage of revenue over the course of, call it, the second half of '07?

Well, where we are at right now is about 12%. First of all, I hesitate to peg it at a specific amount because, clearly part of what we had to do was we had to get this roadmap really worked out and now that we have done that, we can be -- we can actually develop forecasts that are a bit more specific. So, I am hesitant to get too specific. But, what I would say is, in general terms, we went up to 12% this quarter which was a sequential increase. It certainly was still below where we were as a percentage of revenue last year. I think that if you look at companies that do what we do, they are probably in the 12% to 14% range. We have tended to be below that. I think that's probably the range we will end up in, but to get more specific about that, John, and when in specific terms, which quarter that will occur, I really don't want to go there yet. We just need to do some more work.

Okay.

And that's the one area also where we had probably didn't have quite as much success in hiring this quarter as we would have liked. So, honestly speaking, we would have wished to have spent a little bit more this quarter. One of the nice advantages by the way of having made the acquisition of Target is that that gives us two places to hire engineering talent and having a second engineering office up in Cambridge exposes us to a different category instead of people that are sometimes harder to find down here in the Carolinas.

Okay. And then last question, with the growth that we are seeing in the subscription line and the historical mix we have seen out of license, at what point notionally are we going to see a crossover where subscriptions actually eclipse your license business?

Oh my gosh. I don't know, you could probably do the modeling as well as anybody here. And that still depends on our -- on the long-term question, which is as of yet, I have not answered publicly, which says what is the long-term -- what is our long-term belief about when people move to a software as a service model and how fast in our business.

So, for the current, all I can say is we are going to keep growing the niche portion of the business as fast as our customers want that kind of business, and once we are a little bit more firmly on the Infinity platform, the ability to be more fine-tuned and to decide what pricing models and what selling models we want to put in place to move people to a model will be easier to make. Those choices really aren't available to us today in any meaningful way because those products aren't going to contribute meaningfully to this year. So, I think that at least for the next couple of quarters, you can project based on the kinds of trends you have seen and then towards the end of the year, ask that question again and we will have some ideas for next year.

Maybe.

I will keep it in mind.

You can always ask -- I mean, Tim may not let me answer, but you can always ask, John.

All right, fair enough. Thanks guys.

Thank you.

We will go next to Tom Roderick of Thomas Weisel Partners.

Hi guys, good afternoon.

Hey, Tom.

Hey, Tom.

Tim, could you just reiterate your comments on the gross margin structure again? What brought down -- how much of that quarterly -- quarter-over-quarter decline was due to Target? I think you said 200 basis points. And then, can you just touch upon how many services heads you hired this quarter and at what point you would expect the utilization rates on those heads to get back to normal?

Sure, I would be happy to. If you look at our services business, our consulting and the analytics business now, and I am going to confine my remarks initially here to Blackbaud and then I will comment very briefly on Target and maybe Lee might want to add something. But, if you look specifically at Blackbaud, standalone Blackbaud, we went from roughly 300 to 350 billable services heads, so an increase of about 50 heads, 40 of which I would basically say are billable resources. So, that was really strong performance for us. So, that was a big part, 2 basis points in the overall gross profit margin really came from that and what we tried -- what I tried to point out in my comments was that it is really a couple of things.

First of all, it's getting those folks onboard. We do all of our training, the people on the services team do a great job, early part of the year, get their team together, set the stage for the year and we did a terrific job this year across the board in getting these people in and getting them trained out of the chute. You will recall also that Q1 tends to be a very low period for us in terms of services engagements. It takes a while, probably a couple of months really for the utilization of those resources to start to ramp. We will start to see that in the second quarter. You will start to see that coming through in our numbers and I think you see it already in the movement of our margin, our overall operating margin that we are guiding to in Q2 versus where we came out in Q1. And so, part of that is actually reflected in what we expect out of those services resources.

And much more importantly, it sets the stage for a better -- for a much stronger second half relative to where we were last year and that clearly is also part of what is factored into our thinking around the increase in our full-year guidance in revenue where we increase both the bottom and top of the range by about $3 million. That's all, not entirely, but it's certainly a lot of that comes out of the -- out of our views on the services organization and how we feel about how that business should roll out the rest of the year.

Now, in the case of Target, the number of services heads, I think it was roughly around three heads net and maybe Lee, you can add a little to this. But, mostly those services heads work in the analytics business. Lee?

Yes, that's correct Tim.

Okay.

One of the things, a different perspective on it, it takes us about two months on average of non-productive time to take a new service head and they start billing about two months on average once -- after they join us.

Okay.

And so, every head that we got in January is one that would have been trained by the end of the quarter and every head we got in March is one that instead of being non-productive for the majority of Q2 would be productive for maybe sort of half of Q2.

Okay. And Tim, so with three heads net added to the Target -- to Target consulting line, how many in total do you have there now?

Lee, correct me if I am wrong, I think it is 15 on the services side?

17.

17, okay.

Great. Just a follow-up question here, again for you, Tim, I think we are now about a year lapping the comparison where you stopped selling The Financial Edge products through the channel. Can you talk a little bit about how your direct reps have embraced that and are you seeing some more efficiency on The Financial Edge product there from a direct sales force perspective?

Well, I am actually going to let Marc speak to that, but I think my only comment would be we feel good about the progress we are making, but Marc, do you want to talk a little bit about Financial Edge and the rev on that?

Yes, well obviously, it doesn't produce immediate results as we saw last year. So, we are seeing definite progress. We had a pretty good quarter with FE, both inside and outside, which is good. The thing that's hard to capture is that the FE business is very -- is more and more frequently sort of the -- something that draws in other parts of our business, which is harder for us to do when we weren't the service organization that was actually doing the FE.

So, I would still say we are not up to the full level of units that we were when we were selling FE through the channel. But, overall, I would say the business is healthy and better today from the overall -- from the perspective of the shareholder and investor in Blackbaud, both because we are doing service business as well as because of the margin improvement that we saw over the last year and then also because of the add-on business it brought in.

Very good, thanks guys.

Thanks, Tom.

Thank you.

We will go next to John Neff of William Blair.

Hey guys, congratulations.

Thanks, John.

Thanks, John.

The share repurchase in the first quarter here has been about almost four times what you spent in all of '06, anything we can infer from that in terms of your perception of value?

Well, no, I think what I would say is we, as you know John, we have never really sort of guided to when we are going to be in the market and when we are not going to be in the market and that continues to be the case. We felt good, very good for -- about where we were and one of the things that clearly we were thinking about as we approached the end of the year was we had the Target transaction in the process of negotiation. So, in the fourth quarter, clearly, we were trying to keep our powder dry a little bit, so we could do the Target acquisition. But, once we got into the quarter and saw the opportunity, we proceeded. So, this isn't necessarily indicative or not of what we will do in the further quarters as we continue out, but I mean suffice it to say we certainly remain very committed to the overall share repurchase program.

The increased guidance here for the year, you mentioned in the press release that Target is not going to be as dilutive as you had originally thought, but is the guidance due to Target not being as dilutive, to the momentum in the Blackbaud business or both?

I would say that the situation -- what we are seeing here is a combination of both factors. So, at an EPS level, we, I believe, raised our guidance $0.03 on the bottom and $0.03 on the top. If you recall what we said about the dilution from Target was we thought the dilution from Target could be anywhere from $0.03 to $0.06. We would now put that estimate at somewhere around $0.03 to $0.04. So, we basically have dropped the downside on the dilution a good bit.

So, clearly, we are feeling better about the overall results from Target. But, I think the other side of it as you heard me mention in response to one of the other questions is we feel good about the momentum of our business, particularly coming out of the quarter and the success we see on the services side in particular.

Okay. Probably a question for Marc, but one of the things I always thought was really interesting about the acquisition was the 15 years of assets -- data assets that Target has on the analytics side and I am just wondering if now that you guys have been together for going on over a quarter now, do you have any greater appreciation of the potential of those assets and what you guys can do with those together?

It would have been hard to have a greater appreciation than I had at the beginning because it was one of the primary reasons, in my opinion, to do the deal. So, technically speaking, it hasn't gone up because it was already really high. The opportunities for us to help Blackbaud customers understand and better benchmark are actually very good and very, very interesting. And we have already started down that path and since Lee is leading it, Lee, you might want to talk about a couple of the donorCentrics opportunities that have come up and how the database has already spilled over to the work that we are doing across the joint analytics teams?

Sure. Just a couple of high-level examples of it. There is -- historically, the very vast majority of Target's business has been domestic, working primarily with U.S.-based non-profit organizations and just the opportunity to work with Blackbaud has opened some doors for us in working with international organizations. There is a handful of conversations going on in Australia, for example, as well as some other international markets that wouldn't have been possible really prior to the acquisition, partly because of the scale of our organization to pursue them, but also just really because of the relationships and things that Blackbaud created.

There is also just additional vertical markets where Blackbaud has a very, very strong presence in historically that we haven't been where again the opportunities have been created to open doors, K through 12 market is an example where there is a lot that donorCentrics can bring to the marketplace and the ability to benchmark across organizations, but we haven't historically had relationships there.

And then, Marc, I was wondering if you could just refresh us on the significance of the new product architecture as far as it applies to international expansion, Internet functionality, et cetera?

Okay. Well, from an international perspective, the advantage of the architecture is that it is engineered to be able to do non-English character sets and it is designed in such a way as to be localized in the most cost-effective manner that you can do today. Everything from how you structure all of the tables that have all the different kinds of words and formats that need to be changed and don't hardwire them in to writing documentation in what's technically known as simple English so that it makes machine translations simpler.

And so from the perspective of the platform then it opens doors that we simply didn't have with either of the product sets, either Team approached very easily or in any way, shape or form Raiser's Edge. And as I have said before, I would expect to have a position about our -- how we will exploit that towards the end of this calendar year, be able to talk more about what the international plans that might be coming out that.

But, that having been said, we have already started to talk with a couple of Target's customers who do have international presence and where Target has made some really significant inroads, specifically with how you deal with multiple currencies and how you connect the banks. So, if someone who is in a euro country gives to a charity in the UK where they record things in pounds and then the headquarters is here, then how do you keep it in dollars, that's something that we actually get out of the Target engineering organization that will accelerate our ability to solve some of these multi-geography situations.

So, I think you will see sometimes during the later part of this year or during next year, would be one or two of our customers who would be - we'd be taking to an Enterprise CRM platform for a distributed organization outside of the United States where we will have our first sort of wins on that front.

Great.

I am sorry if there was a second half to the question, I forgot it.

Oh, I just -- specifically, I meant international and Internet functionality, but --

The platform -- from an Internet functionality perspective, the platform is .NET, which means it is basically 100% Microsoft and it uses a lot of the functionality, including the internationalization functionality of Microsoft. But, what it also gives you is four other things that I think are worthwhile. The first is you can deploy things over the Internet or just point a browser at the server and once you have authenticated yourself from whatever machine you are, you can actually use it. That does things that Raiser's Edge couldn't do, which had a heavy client, so I think if a disaster strikes in your end, you are in Baton Rouge after Katrina, you just point browsers at the core of servers and all of a sudden, any machine there becomes a full-fledged workstation for the Enterprise CRM platform.

The second thing it does is it allows you to have a lot finer and more granular control over who gets to see what data in a distributed environment. So Internet deployment, data access control. The third is that it is a platform that you could run as software as a service platform. So, that means that those products are ones that we can deliver not just as hosted but actually as a provision of software as a service, because as a service architecture, .NET means that all the little different pieces of an application are really Lego blocks that you can choose and pick and choose and deliver a receptionist workbench that's sort of different from a CFO's one, which is very different from a Development Officer's one, and you can do that to fit customer needs. So, it is more easily adaptable.

And those are the three primary advantages, two of them are the Internet deployment and the ability to deliver software as a service over the Internet and those would be the two primary Internet-related ones that I have mentioned.

Great. And then last question, you mentioned a multi-product suite and sales on it, just wondering if you could give us some more color on that and what sort of traction you are seeing? Thank you.

Yes, you are welcome. We won't give specifics at this point in terms of suite, but what we meant by that was to say that more and more of the customers are finding the value of the actual integration of the database across multiple applications. And so, in the past, we were more likely to see someone sort of buying Raiser's Edge and then go back up a year or two later and sell Financial Edge or vice versa. We just had a major university customer deal this quarter that -- they had Financial Edge and the relationships that we have is such that they -- that advantaged our sale of Raiser's Edge down the road.

We are seeing more and more of them where two or three applications are being sold as a package because they want to not only do major giving, but they also want the Internet presence and they want the accountability that comes with a financial application or they want it integrated with their student information system as a K-12. And just so the percentage of deals that look like those multiple products because of the desire to have an integrated database is going up, it's not in most cases a packaging decision, although we will be approaching the small college market with a more integrated solution or we have been approaching the small college market with a more integrated solution that is actually a package -- more packaged and that's seeing also greater interest.

We will go next to Alan Cooke of Merrill Lynch.

Hello, Alan.

Hi there, how are you?

Good.

Are there any plans to increase the buyback program?

The -- as I said earlier, we are still committed. We have always said that when we get into the market and when we are not in the market, we are not going to signal that. We had quarters where the purchase of shares were certainly light. We can't be specific at this point on when we might increase our authorization. I guess the best way to answer that is to say we remain very committed to the share buyback program. So, I think the best answer is to just stay tuned.

Okay. And then in terms of your gross margins for your subscription business, they are a little bit lower than expected. Was that because of Target? And also, what are your expectations going forward?

The principle reason for the decrease was the combination of Target, but I think what I want to stay away from is guiding to specific gross margins in specific areas. In fact, we haven't really given guidance overall on our gross margins. I think the best way for me to answer this is certainly over time, we want to get back to a gross margin in the high 60% to 70% range and we think that's doable and our thinking around that includes what we think is possible for our subscription business as well.

Okay, thanks. And just the last question, in terms of your sales force, are you done with the hiring for the year or do you have plans for any more, and if so, where?

Okay. Well, just to summarize so we are really clear on sales headcount, at the end of the quarter, we were at roughly 158 quota carrying sales people. Now, this excludes Target; this is just Blackbaud standing alone. I am sorry, 159. That -- in terms of quota carrying people, was up about 15 heads versus where we finished the year. In addition to those 159, we still had nine sales heads sitting on the bench ready to move into position. So, I think what you are likely to see is we will add selectively to our headcount as we move through the year and evaluate the opportunities and I think what you are likely to see is that some number of the nine heads that we have got sitting there on the bench will likely move into quota carrying positions as we move into the next few quarters.

Great. Thank you, Tim.

Okay.

We will go next to Priya Parasuraman of Wachovia.

Thanks. This is (inaudible). A quick question on the competitive environment, are you seeing any changes, and as you enter these new product opportunities, will you be seeing any new competitors in there?

Your phone line just broke up quite badly, so I am afraid that neither Tim nor I understood that question.

Can you hear me better now?

Yes, that sounds okay.

Okay, sorry about that. On the competitive environment, are you seeing any changes and as you enter the newer product opportunities, will you be seeing any new competitors?

Yes. So, we haven't seen a dramatic change in competitive environment. I think that on our financial applications, we would probably see a little bit of a concentration towards Sage and a little bit of Kintera having a harder time given their financial challenges. On the overall fundraising side, I think things have stayed very, very similar. There continues to be a hotly contested competitive environment with the consolidation of Convio and GetActive. Certainly, that puts one fewer competitor but a larger one. But, those are all -- they have all stayed relatively the same. We have made progress I think against many of those competitors.

The only place where you would really see a significant difference would be at the very high end of the spectrum -- when we are selling $1 million, multi-million dollar deals, that's where you will run into somebody like PeopleSoft or an Oracle, a system integrator with Oracle, and when we were selling $100,000 deals, you just don't see those competitors at that size. So, the only place that we will be incurring a little more competition of large vendors of that type are in the very, very larger deals, but I would say that that's a handful of deals on an annual basis. It would not be the majority of Enterprise CRM deals by any stretch of imagination.

Thank you.

You are welcome.

Thanks.

And we will take our last question from Ross MacMillan of Jefferies & Company.

Thank you. This is [Ross] here for Ross. Appreciate for taking my questions.

Hello, Ross.

Just a question on the new customer -- congratulations on the quarter first of all.

Thanks.

On the new customer traction that you are seeing, am I -- the unit volume increases, it sounds like those are coming from more efficiencies in the mid-market teams. Can you just give us again the sense for what -- what are they doing better? Are they actually uncovering more greenfield opportunities? Are the competitive win rates going up for them or is it just the addition of more heads there and their ability to just cover more ground?

Well, it is a little bit of everything, so all three of the things that you mentioned have improved. The marketing efforts, we spent quite a bit of time building in metrics and measurement systems for the marketing efficacy and that means that lead volumes are actually probably somewhat down but the lead quality is dramatically up.

And then we have improved our ability to sell and close a little bit in some segments, but -- and that was in part in some cases related to coverage or managerial challenges as specifically part of the significant increase on the international front last year, we had a couple of challenges that we had not yet addressed in the first quarter and we did not have a director -- a managing director for the UK at the time, for example. And we had some challenges in Canada as well.

So, it is really across the board. I think of it as basic blocking and tackling, just simply improving execution and improving the systems that we have to measure the quality of execution at each step from awareness all the way through to satisfied customer.

Okay. And you had mentioned that for the new products, you had one customer in deployment. I assume that wasn't the eCRM yet, but maybe I am wrong. When do you expect that you might get your first customer in eCRM and particularly since some of them are working with you on the beta -- on the platform?

Well, we -- yes, you are absolutely right. The first customer is a direct marketing customer and I am not ready to say exactly when that customer will be willing to speak up and be counted. In fact, it is -- this is a multi-quarter process. And so, that's why we are focused on getting people through them as fast as we can because it is always this period of time when you have -- selling a new platform and don't yet have the production references, that's the hardest period.

Okay. And then just a couple of last -- can you update us on the release time frames for the new version of NetCommunity that's disassociated from RE and then RE 8.0?

Okay. We have no announced plans for RE 8 at this point, so stay tuned. The versions of NetCommunity, there actually has been -- there has been sort of a -- there has been a small change from the last time we talked about this in that the next version won't be the independent version, it will be the version that connects to Team Approach. And so, the independent version has moved out by about a quarter or so and will be in the first part of 2008 as opposed to the end of 2007. And in between, sometime later this calendar year, there will be a release that is the Team Approach and the [graded] release.

Okay, great. Thank you very much.

Thank you.

You are welcome.

And we have no further questions. Mr. Chardon, I would like to turn it back to you for any additional or closing remarks.

Well, thank you all very much for joining us in the call today, and Tim and I are going to be on the road for I think some time next week and I am sure we will see many of you out there and I really just wanted to say that we both or all three of us, with Lee, like to thank you for your continuing support of Blackbaud and the coverage.

And ladies and gentlemen, that does conclude today's call. Thank you for your participation. You may now disconnect.